Building surveys or structural surveys are a vital component of the UK commercial property trade and industry.
Typically, comprehensive surveys are carried out for the sake of technical due diligence. In essence, property acquisitions in the UK are subject to caveat emptor, ‘let the buyer beware’. Whilst the seller is legally obliged to provide a fair and complete record of a property, its state, condition and any other supporting documents, it’s down to the buyer to commission a survey prior to the exchange of any contracts.
The priority of a building survey is to assess a commercial building for safety purposes. This is particularly important for industrial buildings, warehouses or other buildings that may have gone unoccupied for periods of time and may be in need of varying levels of renovation before they’re fit for purpose.
However, a commercial building survey is also vital for the economics of the project and can guide investors as to the risk of a property and any immediate and future costs associated with running and maintaining the building.
Technical due diligence is the process of analysing an investment or acquisition prior to purchase. TDD is part of the lead-up to exchanging commercial property/real-estate contracts.
In the commercial property world, technical due diligence is particularly important due to the number of variables involved in property investment.
Instead of working entirely with theoretical risk and mathematical economics, property investment works with many physical factors relating to the building itself. Many of these factors, particularly a building’s physical condition, will affect how risky the investment is and can guide bids or prompt further queries surrounding the investment.
Technical due diligence can also establish whether any statutory non-compliances relating to the building in question. For example, it might discover high concentrations of waste chemicals that violate environmental regulations.
In this example, if the chemical waste is not uncovered through the buyer’s due diligence then it falls under the buyer’s responsibility as soon as contracts are exchanged, signed and the deal closed. It may be picked up later on when the lease is transferred to back to the vendor or to another party, and the blame will fall on the last occupier, even if the chemical waste was present beforehand.
Primarily, TDD focuses on the condition of the building. As part of TDD, a building’s survey will be carried out.
Building surveys, conditions reports and schedules of condition should be carried out as part of TDD but they are not all the same thing. TDD simply refers to the whole process of the buyer applying a rigorous analysis of the building and the investment to gain as complete a picture as possible prior to contractual agreement.
Buildings surveys as carried out through TDD will firstly assess the following:
- Structural and design issues associated with the property
- Neglect and a lack of scheduled upkeep and necessary maintenance
- Non-compliance with Building Regulations and Codes (fire exits, asbestos, etc)
- Upkeep of services, equipment or other items and mechanisms (e.g. doors) that may be nearing the end of their life
Beyond the physical condition of the building, TDD surveys will also look to:
- Understand the design, condition and state of the property and its various parts
- components, services and amenities
- Establish whether or not it is suitable for its intended use
- Provide a schedule of condition and forecast of any forthcoming repairs or maintenance costs that the buyer has to be aware of
- Provides an assessment of safety for the building’s new purpose
- Describes whether or not an older property will need to be modified to comply with modern regulations
Two things could happen following a commercial building survey. Either the surveyor finds that the building is largely in-line with the vendor’s description, and that it complies fairly to their asking price.
Or, the surveyor finds discrepancies and/or issues with the building that brings the deal back to the drawing board and instigates the drafting of new terms.
It really depends on how the vendor has listed their building and whether or not it is ‘pending survey’. If it’s a newly built building that is freshly available from a lease as an office block, for example, then it’s highly likely that everything found in the survey will align to how the building is stipulated and described on paper and the asking price will at least be in the right ballpark.
If, however, the building in question is an industrial warehouse that has been out of service for some time, a survey will be needed to guide price negotiations. It may even be that the vendor has not set foot in the building themselves to assess its condition. Due diligence is primarily the buyer’s responsibility but it does go both ways when a seller does not know what they’re selling or how much it is worth.
In either case, the vendor may themselves provide a vendor survey which achieves the same goals as a building survey carried out by the prospective buyer during TDD.
This is likely if the vendor needs a property valuation or does not know the condition of the building (e.g. they inherited it).
In this case, it may be that the vendor’s report can be reassigned to the buyer. This process will vary and will require liaison between each party’s surveyors.
In the case of older, riskier or industrial buildings, commissioning another buyer’s side survey is strongly advised. Any discrepancies between the two reports can then be ironed out as the price is negotiated and the contracts are drafted.
As part of a building survey that takes place during the TDD process, a Schedule of Condition should be generated. This is a document that specifies, with evidence, the condition of the building and its various features. Schedules of Condition should be prepared alongside relevant photographs and video. The lease should be updated to refer to this.
Schedules of Conditions are a simple way to set the precedent for the building’s condition before the lease is transferred. They are a powerful means for tenants to avoid incurring costs from damages that they are not responsible for and differ hugely to full repairing and insuring (FRI) leases where the tenant carried responsibility for faults that may have existed prior to their lease.
The key to creating a good Schedule of Condition is photographic accuracy, labelling and terminology. Each part of the building should be labelled correctly and photographed without casting any doubt on where the damage/defects are.
In essence, the Schedules of Condition protects the tenants from unfair dilapidations payments whilst ensuring that they won’t be forced to pay for repairs to defects present prior to the lease being transferred.
So what about the survey itself?
Typically, a building survey will start with the foundations. This is particularly important for industrial buildings and/or warehouses that may have older foundations that have been reinforced or modified over time.
Establishing the exact condition of foundations can be tricky. A review of building documentation and blueprints is a good starting point. A survey will establish the frame of a building, and in the case of warehouses, this will usually be a steel frame known as a portal frame.
The foundations here will usually be pad or piled foundations. Piled foundations are steel columns inserted into the ground whereas pad foundations are concrete blocks that support columns at the surface of the ground.
Older buildings may also have strip or raft foundations. These are more frequently used for shallow ground foundations and may be more susceptible to ground movement from flooding, waterlogging, etc. Ground movement is the primary source of defects.
A survey will then assess whether the foundations are showing evidence of cracking, bending or other distortion. This might create inconsistencies between the depths of the building’s foundations. Even small defects can rapidly turn problematic over the course of just months or years, so it’s important that even slight evidence of ground movement is properly noted and its effect documented.
Walls, including party walls with neighbouring structures, will also be surveyed. Lattice or masonry walls are most common in industrial buildings. These may show evidence of frame distortion or can erode from internal building vibrations or efflorescence, where a fine salty mist permeates walls.
Warehouse roofs are often simple and utilitarian formed from sheet metal. Most modern warehouses are well-shielded from the elements, particularly wind, but damage is still common and leaks may surface during adverse weather. The trick thing is, it is often not possible to survey a building in adverse weather to assess any leakage resulting from heavy rainfall. A proper roof inspect is therefore required to rule out any serious leaks.
Most roofs are subject to some form of degradation resulting from salt and UV, vegetation and the build-up of industrial debris.
Windows and doors in heavy-duty warehouses, in particular, can quickly fall into disrepair. In the case of roller shutters, poor maintenance can be dangerous.
Windows and doors may also not be moisture or wind-tight, which would be a problem if the warehouse will be used to store sensitive materials or products.
In many cases, it depends on what the property will be used for and a surveyor will note whether the building’s windows and doors could pose a problem for the building’s new intended use.
Fire proofness and security is also a key feature of windows and doors and inspections must take place to ascertain what sort of safety upgrades are key to renovating the property into something that can be safely occupied.
Car parks, service areas and other outside areas must also be inspected for issues like potholes, which may prove an issue to certain vehicles or machinery. Drainage systems should also be inspected to ascertain whether outside areas become flooded or hold a lot of standing water which could prove treacherous under icy conditions.
Waste management access should also be surveyed in case a warehouse or building’s new use involves enhanced waste collection.
The flooring, wall finishes and other internal features will need to be surveyed for defects. Flooring is particularly important here as it’s subject to cracking and may become uneven which could be unsuitable for some vehicles or machinery.
Stairs, lifts and other mechanical features should also be studied closely for their state of repair and safety features.
Some warehouses and commercial buildings may be vulnerable to contamination, particularly if they involve chemical production or other manufacturing that involves hazardous raw materials. Contamination reports are particularly important for reducing the liabilities of new tenants who could otherwise be blamed for contaminating the building themselves when the lease terminates or the building is resold.
Some surveys occur as part of acquisition but also on an ongoing basis throughout a building’s occupation. These can be organised into Acquisition, Occupation, Disposal (selling) and Development. Most of these surveys should be undertaken by Chartered Surveyors or specialist surveyors.
They are as follows:
Surveys should also try to assess how the building will be maintained in the future, and how the new occupiers will keep the building safe and fit for function with its new purpose.
The Stock Condition Survey will help in the creation of a maintenance and repair schedule for the building. It is particularly important for those who manage a portfolio of properties that need to be periodically checked for their ongoing safety and condition.
Specialist surveys can also draw up disaster recovery assessments that include a series of scenarios for disastrous events and their consequences, e.g. fire, flooding, trees falling through the roof, etc. It will detail the best course of action for a business or organisation to take in the event of a catastrophe.
For compliance with ease of access regulations, e.g. the fitting of disabled access points. Access audits will assess what a building needs to comply with the Equality Act and can be used by people with a range of impairments.
Workplace Assessments are primarily relevant for the safety, health and wellbeing of workers and will itemise what needs to be done in order to make the building fit for safe use. This may involve fit-out works, works that need to be done to purpose the building for work, e.g. fitting heaters, adequate lighting, extra toilets, etc.
Workplace assessments will also accurately try and surmise how a building will be impacted by any proposed work taking place within it. Building uses will have to remain in line with the Use Class Order, unless converted between uses.
But, different types of work within the same use may impact the building differently. E.g. heavy vibrating machinery may not safely integrate into a warehouse with many single-glazed poor quality windows.
Finally, some surveys have to take place prior to the development of a building or land.
If a newly acquired property will be developed immediately or soon after acquisition, development surveys can take place simultaneously with any conditions reports.
Any relevant Permitted Development Rights will need to be assessed with regards to planning permission and will ascertain what can or can’t be done with the building with or without proper planning permission.
A development survey may also involve a development appraisal. This will involve an objective assessment of the financial viability of the development for the site. It is relevant for both the valuation of the development and its planning, and will assess the location, legal and planning characteristics of the development.
Of course, if the acquiree wishes to begin development immediately then a planning timeline should already be agreed, in process, or permissions already granted, but if they wish to hold the property for a period before then an appraisal can be drafted from initial surveys.
Environmental, sustainability and feasibility surveys will also take place for commercial warehouses and industrial buildings that will undergo development soon after acquisition. For developments that will require different access, access appraisals will have to be made to state that the new development can function in-line with the local road and transportation infrastructure.
A number of specialist surveys may also be required ranging from geotechnical surveys to study the physical viability of new constructions to archaeological surveys and a BREEAM assessment that studies a number of sustainability metrics and indices relating to pollution, ecology, waste management, health and wellbeing.
Depending on the property itself, its use and plans for the future, the list of required surveys may seem exhaustive.
Of course, it may be that commercial property is being acquired solely for investment purposes, and that it will be held for a period and sold or developed down the line. But, even then, the building will need to be surveyed to assess any hidden liabilities or ascertain whether any future development plans will be viable.
On major acquisitions that are undergoing extensive development, it is highly likely that teams of surveyors will be required to tackle each aspect of the building and its development. Some surveys will take place simultaneously but longer-term studies may require periods of months or years to reach their conclusion.